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Feb. 15 (Bloomberg) -- The Obama administration pledged to work with Congress on implementing tough executive-pay limitations at banks that get federal bailout money as critics said the new restrictions in economic- stimulus legislation will prompt talented managers to leave.

The limits, championed by Senate Banking Committee Chairman Christopher Dodd, were tucked into the $787 billion fiscal stimulus bill approved Feb. 13 by Congress. President Barack Obama plans to sign the stimulus bill into law Feb. 17 in Denver, said his spokeswoman, Jen Psaki.

The administration sought to make “technical” changes in the executive-pay restrictions before the plan was approved by Congress, Psaki said yesterday in an e- mailed statement.

“The president shares a deep concern about excessive executive compensation” and “he looks forward to working with Congress to responsibly address this issue,” she said.

Administration officials wanted to keep the executive- compensation measures as part of the financial-sector rescue package, according to a person familiar with their views. This person said the executive-compensation provision in the stimulus bill was a contentious issue. The administration decided not to fight the provision because of the possibility it would have to go back to Congress for more bailout funds, the person said.

More Stringent ProvisionsSome of Congress’s provisions go beyond the $500,000 cap announced by Obama last month, by restricting bonuses for senior executives and the next 20 highest-compensated employees at companies that receive more than $500 million from the Treasury Department’s Troubled Asset Relief Program. It limits bonuses and other incentive pay at companies on a sliding scale according to how much federal aid they receive.

“The soon-to-be-law prohibits paying commissions, which are the lifeblood of a salesperson’s income,” said Scott Talbott, vice president for government affairs at the Financial Services Roundtable, a Washington trade group that lobbies on behalf of banks. “Non-TARP companies, like hedge funds and foreign firms, don’t have this restriction, so it will be easier for them to hire the top producers away.”

Obama, 47, called bonus payouts at banks receiving federal aid “shameful” on Feb. 4 when he announced the government would require financial companies getting aid in the future to cap compensation of top officials at $500,000 a year.

Citigroup Inc., JPMorgan Chase & Co. and Wells Fargo & Co. each received $25 billion from TARP, the biggest beneficiaries of the program that injected $195.6 billion in more than 330 U.S. banks as of Feb. 10, according to a report from the U.S. Treasury. Freeport State Bank in Harper, Kansas, received $301,000 from TARP, the smallest amount approved by the Treasury.

Dodd dismissed complaints that the provisions would spur some talented managers to leave companies subject to the restrictions.

“Some very high earners will have to adjust compensation expectations and maintain a different sense of proportion than in the past,” Dodd said in a statement yesterday. “The current job market should deter employees from leaving, and if they do, there are many qualified replacements.”

Earlier, the senator defended Congress’s restrictions as a proper response to reports of excesses at banks that received federal aid, including the award of a combined $121 million to four executives at Merrill Lynch & Co. just before the company was acquired by Bank of America Corp.

Sliding ScaleThe legislation limits bonuses and other incentive pay at those companies on a sliding scale according to how much federal aid they receive.

Under the sliding scale, restrictions would apply to senior executive officers and the next 20 highest paid employees at companies that receive more than $500 million from TARP. Companies receiving between $250 million and $500 million would face restrictions on their senior executive officers and their next 10 highest-paid workers. The limits would apply to the top five employees at companies receiving between $25 million and $250 million.

The bonus restrictions would apply only to the single- highest paid employee of companies receiving less than $25 million in aid.

Top 25 OfficialsThe original bill applied the limit to the top 25 officials at all TARP recipients, according to an administration official, speaking on condition of anonymity. Dodd adopted the sliding scale after administration officials expressed concern that the provision would punish executives at small community banks, the official said.

Obama’s administration was concerned about another provision allowing banks that receive stimulus money to pay it back without getting a similar amount of funds to replace it from private sources, as Treasury requires, the administration official said. Paying back the money without getting private funds to replace it wouldn’t aid the flow of credit, the official said.

The administration considers its plan stricter in the sense that it would cap total compensation for affected executives at $500,000, while Congress’s plan would impose limits only on bonuses, not on executives’ salaries, the administration official said.

Dodd expressed surprise at the complaints he said he’s received about the restrictions.

“People are calling up and bellowing because somehow they are going to be asked to be restrained from providing these exorbitant incomes for some people,” Dodd said in a Feb. 13 speech on the Senate floor. “This is the deepest financial crisis we have had in many years in America and they are worried about their pay.”

ShareholdersCongress’s plan also would go beyond what the White House proposed by giving shareholders in all companies, not just those receiving “exceptional” assistance, an annual non-binding vote on executive compensation.

The Dodd amendment requires the Treasury Department to review past compensation paid to the top 25 employees of TARP recipients to determine if it is “contrary to the public interest.”

The plan requires TARP beneficiaries to create a companywide policy regarding “excessive or luxury expenditures” such as corporate jets, entertainment and “other activities or events that are not reasonable expenditures for staff development.”

It bans “any compensation plan that would encourage manipulation of the reported earnings” of TARP beneficiaries in order “to enhance the compensation of any of its employees.”

‘Making Me Nervous’The bill “is making me nervous,” said Mindy Diamond, president of Chester, New Jersey-based Diamond Consultants LLC, which specializes in recruiting brokers. “It raises more questions than it answers. Everyone agrees that financial services need an overhaul, but no one wants to have their livelihood messed up.”

Talbott said the limits in the stimulus plan may backfire by making U.S. banks in need of assistance less likely to seek it.

“It will make TARP less attractive and therefore reduce participation by healthy institutions, which undermines the whole program,” Talbott said.

During negotiations over the final stimulus package, lawmakers agreed to drop more punitive provisions that would have required firms taking TARP money to pay back the cash portions of bonuses topping $100,000 that were paid to employees for work last year.

Tax PenaltiesWhile the administration’s plan would limit executive pay, it would permit additional compensation in the form of restricted stock that can’t be sold until taxpayers have been paid back with interest. Senior executive compensation plans also would have to be submitted to a non-binding shareholder resolution.

Obama’s plan superseded restrictions in the TARP legislation that relied on tax penalties to make excessive pay unattractive. That law was criticized for being too weak.